Question

Jansen Company reports the following for its ski department for the year 2019. All of its costs are direct, except as noted.

Sales	$	630,000
Cost of goods sold		440,000
Salaries		114,000	($25,200 is indirect)
Utilities		15,400	($5,600 is indirect)
Depreciation		48,000	($17,400 is indirect)
Office expenses		25,800	(all indirect)

1. Prepare a departmental income statement for 2019.
2. & 3. Prepare a departmental contribution to overhead report for 2019. Based on these two performance reports, should Jansen eliminate the ski department?
  

Answer 1

Answer 1:

Sales	$ 630,000
Less: Cost of goods sold	$ 440,000
Gross profit	$ 190,000
Less: Expenses
Salaries	$ 114,000
Utilities	$   15,400
Depreciation	$   48,000
Office expenses	$   25,800
Net Income	$ (13,200)

Answer 2:

Sales	$ 630,000
Less: Direct costs
Cost of goods sold	$ 440,000
Salaries	$   88,800
Utilities	$     9,800
Depreciation	$   30,600
Contribution	$   60,800
Less: Indirect costs
Salaries	$   25,200
Utilities	$     5,600
Depreciation	$   17,400
Office expenses	$   25,800
Net Income	$ (13,200)

Answer 3:

These ski department should NOT be eliminated because the contribution of the department is positive i.e.. $ 60,800.

In case of any doubt or clarification, feel free to come back via comments.